Water heater manufacturers use a gap between the top of the water heater flue and the vent connector pipe above it to pull additional air into the upward flow of combustion air to help it exit more efficiently. There is a tapered cone-shape above the gap, called a draft hood, shown in the diagram below.

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If the draft hood has been bent out of alignment with the flue opening at the top of the water heater (as in the photo below) or if there is any negative air pressure around the water heater—such as from the return air opening of an HVAC system nearby sucking air into it—then some of the combustion gases from the water heater may be drawn out at the draft hood opening, instead of additional air being pulled in. This is called backdrafting. It can also be caused by any obstruction or convoluted turns in the vent connector.

Signs of a backdrafting problem are melting/buckling of the plastic discs around the pipe penetrations of the top of the water heater around the draft hood, as in the photo above, and corrosion around the opening due to moisture and acidity in the combustion gases that have been flowing over the top of the water heater, shown in the photo below.

It is possible to demonstrate backdrafting when the burners are on by putting a mirror next to the draft hood opening and observing moisture from the combustion gases condensing on it, or by holding a match or smoke-generating device next to the draft hood to see the direction of the air flow.

Because backdrafting means that combustion gases, including carbon monoxide, are not properly exiting the home, it is a safety concern should be repaired immediately. But the wrong solution is to simply remove the draft hood altogether, like the homeowner did the in the photo below.